CMO Market Update

February 25, 2019

Spreads for Sequentials and PACs were unchanged last week after the Treasury curve saw little movement. Next week, we will review February activity with the Monthly Trade Summary.

As market participants have shifted focus from rising to falling rates, investors are looking for steady cashflow profiles. In the Structure Highlights below, we compare a variety of CMO types sorted low-to-high by Weighted Average Life. For example, among Sequentials, 3s off of 4s (Highlight 2) project to perform well. Although there is some yield give up compared to 4s off of 4.5s (Highlight 3), the average life of the GNMA holds up well in a down 100bps scenario and exhibits much less negative convexity.

Travis Nauert, CFA

Analyst, Investment Strategies

Vining Sparks IBG, LP

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